US bonds mixed amid auction, stock slide

U.S. sovereign bonds were mixed Monday after a sale of two-year notes saw weak demand and amid a dip for stocks and oil prices.

The Treasury Department auctioned $26 billion in two-year notes at a high-yield of 1.056 percent. The bid-to-cover ratio, an indicator of demand, was 2.8 versus a recent average of 3.29.

Indirect bidders, which include major central banks, were awarded 37.5 percent against a recent average of 46 percent. Direct bidders, which include domestic money managers, took 27.1 percent versus a recent average of 14 percent.

Benchmark 10-year Treasury notes yielded 2.2242 percent after the auction, down from the last closing price of 2.243 percent. Two-year note yields rose to 1.0108 percent, up from 1.002 percent. (Bond prices move inversely to yields).

US 10-YR
US 30-YR

The U.S. Treasury will also auction $35 billion in five-year notes on Tuesday and $29 billion in seven-year notes on Wednesday.

Trade is seen thin this week, due to the Christmas holiday, with several major international markets closed. These include the U.K. gilt market.

On the data front, the Dallas Manufacturing Outlook Survey showed a decline in activity for this month.

U.S. and Brent crude futures for February both fell on Monday, but West Texas Intermediate (WTI) futures accelerated losses during early trading, struggling to defend their newly gained premium. U.S. crude gained around 9.7 percent last week, its biggest weekly gain since early October.

Japanese sovereign bonds crept higher on Monday, following downbeat economic data from Tokyo. Both Japan's factory output and retail sales fell 1 percent month-on-month in November, missing market expectations.

With the benchmark S&P 500 up just 0.1 percent on the year, this week's trade will determine whether the stock index ends 2015 in positive territory. The three major U.S. averages traded lower on Monday.